CFPB Advance Notice of Rulemaking: Debt Collection Concerns

The Consumer Financial Protection Bureau (CFPB) recently released a 114-page Advance Notice of Rulemaking seeking comment, data, and information about debt collection practices affecting consumers. The notice discusses the federal Fair Debt Collection Practices Act (FDCPA), a law which governs the collection of consumer debts by third parties. The Bureau expects to "address concerns relate to debt collection using its authority under the Dodd-Frank Act to issue regulations concerning unfair, deceptive, and abusive acts or practices and to establish disclosures to assist consumers in understanding the cost, benefits, and risks associated with consumer financial products and services."

The Bureau is now seeking answers to the 162 questions posed in the Advance Notice. The questions tend to suggest that upcoming new requirements will be imposed on consumer debt collectors, including original creditors collecting their own delinquent debts.

Source: Sherman & Howard, LLC, JD SUPRA BUSINESS ADVISOR: CONSUMER DEBT COLLECTION (December 12, 2013),http://www.jdsupra.com/legalnews/consumer-debt-collection-58060/.

Happy Thanksgiving? Nationwide Food Stamp Cuts

According to the Huffington Post, due to $5 million in cuts to the Supplemental Nutrition Assistance Plan, known as the food stamp program, Thanksgiving dinner could be substantially smaller for the 42 million Americans that rely on the program.

Since 2007 the number of individuals dependent on food stamps increased by 70 percent, according to the Sunlight Foundation Reporting Group. With cuts to the federal plan, food pantries and food banks nationwide are expected to see more visitors this holiday season.

Source: Emmile Buchanan-Whitelock (compiler), DESERET NEWS NATIONAL (November 25, 2013), http://national.deseretnews.com/article/659/Food-stamp-cuts-leave-many-Thanksgiving-dinners-feeling-thin.html.

Prices Rising: New California Home Buyers Shut Out of Silicon Valley

According to the San Jose Mercury News, local MLS (multiple listing service) reports show a rise in single-family home sales in Silicon Valley. However, rising home prices and interest rates have made home ownership less affordable in California, particularly in Silicon Valley. Compared to October 2012, median prices in San Benito, Santa Clara, and Santa Cruz counties have all risen between 12 and 45 percent.

The Mercury reports that home buyers need to earn a minimum annual income of $165,420 to qualify to purchase an $805,000 median-priced, single-family home. Carolyn Miller, President of the Silicon Valley Association of Realtors, states that "with Silicon Valley's economic recovery, there is no doubt that it has become more difficult for home buyers, especially first-time home buyers, to purchase a home in the region."

Source: Rose Meily, High home prices shut out buyers, SAN JOSE MERCURY NEWS (November 18, 2013) http://www.mercurynews.com/news/ci_24550995/high-home-prices-shut-out-buyers.

Dear Class of 2013, Your Loans Are Due

Dear law school friends from the class of 2013,

This is a short article that I think you should read.

Since the spring of 2013, the federal government added new income-based repayment plans to help new borrowers (like you) pay less per month on their student loans. These plans also allow borrowers to obtain loan forgiveness after 10, 20, or 25 years of payments (depending on the plan). These plans include the new Pay As You Earn (PAYE) repayment plan, Income-Based Repayment (IBR), and Income-Contingent Repayment (ICR).

You should know that all borrowers are automatically enrolled in the Standard 10-year repayment plan when they leave school. They must take action to opt into and apply for any of the others, provided they meet the eligibility criteria. The borrower can do this by logging into their account at studentloan.gov and applying for income-based repayment. This can be done in a matter of minutes through the website's new electronic application system. Borrowers can opt into any plan for which they are eligible at any point during repayment and generally can change options during repayment.

As you will see below, in order to maximize student loan forgiveness you will generally want to enter into these plans as soon as possible. However, based on your income and the amount of your debt, you may decide that an income-based repayment plan is not a good idea (you will pay more interest compared to Standard repayment, for example). Thus, for small loans, you may prefer to stay with Standard repayment (but what kind of law student owes only $5,000 in student loans?). So before you start on Standard repayment and risk defaulting or losing precious months towards your forgiveness period during your first year of payments, consider the following payment plans.
 
Income-Based Repayment (IBR) and Pay As You Earn (PAYE) allows borrowers to make monthly payments based on their income if they meet a debt-to-income test. Borrowers may opt into IBR or PAYE if their payments under that plan would be lower than payments under the Standard (10-year) repayment plan. Let's be honest. Unless you are making a very substantial salary your first year out of law school or college, your IBR or PAYE payment is going to calculate to be lower than what you would normally pay under Standard repayment. This is because those payments only require that you pay 15% and 10% of your discretionary income per year towards the plan, respectively. Generally, your discretionary income is based on your most recent tax return.

New and recent student loan borrowers qualify for the coveted PAYE plan. For those who qualify, they need only pay 10% of their discretionary income after a base $17,235 exemption. Also, borrowers who make 20 years of qualifying payments receive a complete forgiveness of their federal student loans.  It is an amazing plan. 

Who qualifies? To qualify, the borrower must have been a new borrower as of October 1, 2007 and must have received a disbursement of a Direct Loan on or after October 1, 2011. What does that mean? It means that, for example, if you were like me and started undergrad in 2006 and took out a student loan for that year, you do not qualify for PAYE. However, for those who began on or after the 2007-2008 school year with no prior federal loans, you will qualify for PAYE. Congratulations.

For those who do not qualify, you may still apply for IBR. Under IBR, you will pay 15% of your discretionary income per year. Also, borrowers who make at least 25 years of qualifying payments will receive complete forgiveness of their federal student loans. As you can see, for long-term borrowers, IBR is not as favorable as PAYE. However, it is still preferable to Standard repayment if it helps the borrower avoid a default and be able to pay their monthly bills.

Income-Contingent Repayment: Not everyone qualifies for IBR or PAYE. If your income is too high to qualify for either of these programs, you may qualify for Income-Contingent Repayment (ICR). Under ICR, you will pay the lesser of the amount you would pay if you repaid your entire loan in 12 years multiplied by an income percentage factor that changes with your annual income or 20% of your monthly discretionary income.

For non-profit and public employees: If you work for a non-profit or work in a public job for an average of 30 hours or more per week, you may qualify for 10-year student loan forgiveness. How do you take advantage of the 10-year forgiveness? Apply for IBR or PAYE as soon as possible and being making your 120 qualifying payments. While IBR and PAYE may not be good idea for everyone, it is nearly always a good idea for non-profit and public employees to enroll if they have a substantial amount of student loan debt.

In short, consider your options. If you owe a large amount of student loans and you want to enter into income-based repayment, you should act as soon as possible before your first loan payment is due. If you would like more information about student loan repayment plans, go to http://studentaid.ed.gov/repay-loans/understand/plans.

Sincerely,

Austin Houvener

The New California Fair Debt Buying Practices Act

Senate Bill 233, the Fair Debt Buying Practices Act, passed the California legislature and was signed into law in the summer of 2013.  The Act, which will apply to debt sold or resold on or after January 1, 2014, regulates entities buying consumer debt for collection purposes by imposing strict documentation requirements. A failure to follow the act results in liability to the debtor and possible dismissal of the debt buyer's lawsuit.

The new act requires that third-party debt buyers actually possess certain information before sending consumers collection letters and statements. This information includes: (1) proof that the debt buyer is the sole owner of the debt, (2) the balance of the debt when it was charged-off by the original creditor, (3) an explanation of any post-charge-off fees and interest, (4) the date of default or last payment, (5) the name and address of the creditor that charged-off the account associated with the debt and (6) the last known name and address of the debt as it appeared on the records of the original creditor. The act also requires that debt buyers have access to the original credit contract between the consumer and the original creditor, if available. 

Further, debt buyers may not sue or obtain default judgments (judgments obtained because the consumer does not come to court) unless specific information is alleged and included in the debt buyer's complaint. A failure to include the required information results in a violation of the act and possible dismissal of the debt buyer's complaint.

Consumers may sue debt buyers for actual damages suffered along with statutory damages of no less than $100 and no more than $1,000. Successful plaintiffs are entitled to costs and reasonable attorney's fees. The act specifically allows for class action lawsuits, with additional damages of up to $500,000 or 1 percent of the net worth of the debt buyer if the court finds a pattern and practice of violations of the act. See the bill PDF here.

Is the new student loan bill a good deal?

In August, President Obama signed into law a bipartisan student loan bill. Without congressional action, interest rates on loans to college students were increasing from 3.4 percent to 6.8 percent. However, under the law signed by Obama, the interest rate for undergraduate loans will fall back to 3.86 percent. Graduate unsubsidized Stafford loans will be 5.41 percent  and Grad PLUS loans will be 6.41 percent. The bill ties interest rates on Stafford loans, as well as graduate and Parent Direct PLUS loans, to that of the 10-year Treasury note, which reflects the federal government's cost to borrow. The rates are determined as of June 1 each year and locked in for the life of the loan.

While the new bill reversed an interest rate hike on subsidized loans, experts are concerned about the long-term effect of the legislation.

On one hand, the new bill provides some stability in interest rates for subsidized loans. "Interest rates on subsidized federal loans for college won't double from last year and a long-term fix will be in place to avoid these annual political chess matches over the loan program", stated Peter McPherson, president of the Association of Public Land-grant Universities.

On the other hand, as the economy improves, the interest rates will rise. This is because market-based interest rates are not static. The bill passed in August caps how high the rates can go: 8.25 percent and 9.5 percent for subsidized and unsubsidized Stafford loans, respectively, and 10.5 percent for all PLUS loans. Those caps are higher than where rates were in July 2013. Students could face those high rates in just a few years.

In the grand scheme, however, interest rates are not a factor in student's decision to borrow. Rather, their eligibility for the loans themselves is what factors into their decision. The ultimate effect of the current legislation does not address over-borrowing and the ominous student debt crisis.

Source: Kelsey Sheehy, New Student Loan Deal Good, and Bad, for Borrowers, U.S. NEWS (August 5, 2013) http://www.usnews.com/education/best-colleges/paying-for-college/articles/2013/08/05/new-student-loan-deal-good-and-bad-for-borrowers.

Automaker's Lending Practices Investigated by the U.S. for Bias

The Consumer Financial Protection Bureau (CFPB) and the Department of Justice are examining the lending practices of major auto manufacturers for possible discrimination in lending, according to regulatory filings.

Toyota Motor Credit Corporation said in a September 13 regulatory filing that the CFPB and Department of Justice sought information from it and other auto finance providers about pricing practices for loans that the company funds for auto dealers.

Toyota could face legal action if the agencies find that it violated the Equal Credit Opportunity Act, a 1974 law barring discrimination in lending.

The CFPB and Department of Justice have sought data about a practice the agency refers to as "dealer markup" and auto dealers can "dealer participation" or "dealer-assisted finance." Under this system, lenders work indirectly by allowing dealers to add to the interest rate the lenders charge and pocket the difference.

The CFPB cautioned banks that they may face enforcement action if they fund discriminatory loans.

The CFPB applies a legal doctrine known as "disparate impact" to consumer financial products. The doctrine states that lenders can be sanctioned for actions that have a discriminatory effect, even where the lender did not intend to discriminate. To determine disparate impact, the CFPB has sought large amounts of data from lenders regarding borrowers' races and interest rates.

Source: Carter Dougherty, Automakers' Lending Practices Probed by U.S. for Bias, BLOOMBERG (September 20, 2013) http://www.bloomberg.com/news/print/2013-09-20/automakers-lending-practices-probed-by-u-s-for-bias.html.

The New College Exit Exam, "CLA+"

Many college seniors returning to class around the U.S. will be required to take a new standardized test, the Collegiate Learning Assessment Plus (CLA+). The goal of the test is to help compare the intellectual achievements of undergraduates from different schools.

Approximately 200 colleges and universities have signed up to give the CLA+ tests at the end of the current academic year. The test will measure analysis, problem solving, writing, quantitative reasoning and reading according to the Council for Aid to Education.

The student has the option of placing his or her corresponding score on their resume, which may demonstrate the ultimate value of their college education.

Douglas Bennett, a Council for Aid board member, said that the test showed promise.

Source: Daniel Lovering, Not enough to graduate college: Now there's an exit exam, NBC NEWS (August 26, 2013) http://www.nbcnews.com/business/not-enough-graduate-college-now-theres-exit-exam-8C11006596.

Third Circuit Rules that Consumers Can Revoke Express Consent Under the TCPA

Gager v. Dell Financial Services LLC, 3rd U.S. Circuit Court of Appeals, No. 12-2823

The 3rd Circuit handed down a ruling in favor of a Pennsylvania woman who was called 40 times by Dell after she sent Dell a letter requesting that its automated calls stop. She had originally filed papers in 2007 allowing the calls. Her letter asking that the calls stop was sent to Dell in 2010, but the calls continued. While the court ruled that Dell could still call her regarding her delinquent account, it would not be able to use its automated dialing system to do so.  The court found that the TCPA provides consumers with the right to revoke their prior express consent to be contacted on cellular phones by autodialing systems.

Source: Jonathan Stemple, Federal court: Consumers can prevent robocalls, NBC NEWS (August 22, 2013) http://www.nbcnews.com/business/federal-court-consumers-can-prevent-robocalls-6C10981035.  

San Bernardino to have bankruptcy "outline" by October 15

San Bernardino officials committed in bankruptcy court have an "outline" to aid in mediations with creditors by October 15. Paul Glassman, the city's bankruptcy attorney, said that "the council is fully supportive of whatever date the court sets" and that the "city got the message, so they're fully on board."

The goal of the mediation is to streamline the city's bankruptcy so that it can quickly put together a reorganization plan.

A status conference for the parties in bankruptcy was scheduled on October 2.

Source: Ryan Hagen, San Barnardino commits to bankruptcy plan 'outline' for mediation, THE SUN (Sept. 4, 2013), http://www.sbsun.com/government-and-politics/20130904/san-bernardino-commits-to-bankruptcy-plan-outline-for-mediation.

Michael Vick to Emerge from Successful Chapter 11 Bankruptcy

NFL quarterback Michael Vick has made arrangements to pay back the last of almost $20 million in debts to dozens of creditors, the Virginian-Pilot reported today. Vick's bankruptcy records show that he has paid about 75 percent of his debts. With this fall's salary from the Eagles and his endorsement income, he should be able to close out his case within months, his attorneys said. Kara Bruce, an associate professor of law at the University of Toledo Law School and the scholar in residence at the American Bankruptcy Institute in Alexandria, called it "impressive" for anyone to emerge from chapter 11 with creditors paid in full. While statistics are not available, "generally speaking, it's a rare situation," she said. "For most people, there's nothing to sell."

Source: American Bankruptcy Institute Newsroom, August 30, 2013
http://news.abi.org/headlines/michael-vick-to-emerge-from-bankruptcy

Tax Consequences of Loan Repayment Programs

Normally, the cancellation of debt is considered income for tax purposes. However, certain types of debt discharge is excludable for tax purposes. Student loan debt forgiven through the Public Service Loan Forgiveness program is considered excludable and participants do not face federal tax liability when a student loan is forgiven under this program. Publication 970, § 5, Internal Revenue Service (2012).

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CFPB "Public Service & Student Debt" Benefits Report

CFPB estimates that over 25% of the workforce is engaged in "public service" and eligible for a federal loan forgiveness program.

Check out the report here:  http://files.consumerfinance.gov/f/201308_cfpb_public-service-and-student-debt.pdf

For Oregonians Facing Creditor Harassment

Check out Michael Fuller's consumer protection blog at www.underdoglawblog.com

Resources for Residential Tenants in California

The California Tenant's Guide published by the state of California is a great resource for tenants who wish to know more about their rights under California law (last updated July 2012).

Free PDF at: http://www.dca.ca.gov/publications/landlordbook/catenant.pdf

The online publication also includes information about ordering physical copies as well.

Tupac’s Mother Settles Bankruptcy Claim Against Suge Knight, Founder of Death Row Records

http://blogs.wsj.com/bankruptcy/2013/08/27/tupacs-mother-settles-claim-against-suge-knight/

Rapper DMX Files for Chapter 11 Bankruptcy

Just days after his arrest on suspicion of DWI, famous rapper DMX filed for chapter 11 bankruptcy protection.

DMX filed in his case in the Bankruptcy Court for the Southern District of New York in Manhattan. He listed less than $50,000 in assets and $10 million in debt. He owes $1.24 million in child support and more than $21,000 on an auto lease. His primary asset is a 50% interest in property located in Mount Kisco, New York.

DMX is most well-known for his 1990's hit "Party Up (Up in Here)."

Source

The Wall Street Journal Bankruptcy Beat Blog, "Rapper DMX Files for Bankruptcy," Jacqueline Palank, July 30, 2013. http://blogs.wsj.com/bankruptcy/2013/07/30/rapper-dmx-files-for-bankruptcy/

Welcome to California Consumer Law Blog

The field of consumer law in California is massive.

http://www.dca.ca.gov/publications/legal_guides/m-1.shtml

The goal of this blog is to provide information about specific consumer law issues, relevant court decisions, and laws that affect consumers in California. This includes both state law and applicable federal law.

Because the body of consumer law is so great, this blog will attempt to focus on the following subject matter areas:

1. Federal Consumer Law (FDCPA, TCPA, FCRA, and TILA)

2. California State Consumer Law (FDBPA, RFDCPA, Consumer Legal Remedies Act)

3. Student Loan Issues (IBR, PAYE, Forgiveness, and Discharge)

4. Consumer Bankruptcy Law (Chapter 7, Chapter 13, Bankruptcy Violations)
5. Consumer Regulatory Agencies (CFPB, CA Department of Consumer Affairs)

This is my first blog, so please feel free to provide feedback and suggestions!